What 2 ways does the CFPB affect your realtor contacts?
Here are some thoughts to share with your realtor connections if you want to sound smart when they ask about the new mortgage regulations. Anyone have any other thoughts?
Here at SCA, we see it like this: real estate agents are impacted both directly and indirectly by the CFPB.
Direct Effects
Now that the CFPB is in charge, realtors will see pre-existing rules enforced like never before. It isn't that RESPA hasn't always prohibited kickbacks and unearned fees--therefore limiting how nice a broker/lender could be to a realtor--it's just that the CFPB is adopting stricter interpretations of those rules and actually has the ability to enforce them, even against the smallest companies.
This is a hot topic for the CFPB. The most common mortgage action brought by the CFPB so far has involved allegations that a service provider paid or received kickbacks in violation of RESPA.
The CFPB will go after small shops as quickly as large ones. As proof, it required $2 billion in restitution in one case, and also found time to bring another enforcement action where it levied a fine of only $34,000. More info. on what the CFPB has done in its first 35 enforcement actions can be found here.
How is the CFPB able to do this?
First, they've got a huge budget and 22 employees per enforcement action (compare to SEC with 3.2 per action). I've been told the story in this way: You've got to remember what it was like when the CFPB was born. It was an $11 trillion business that was poorly regulated. At a time when another new broker opened up shop every day, state regulators had insufficient staffing and support. Now, the pendulum has swung too far the other way. We've got a new, ultra-powerful cop on the block designed to be successful in the worst of times. But many of the bad actors are already out-of- business, i.e. off the CFPB's "to-do" list.
Second is the CFPB's complaint process. Pulling in more than 300,000 complaints so far, no doubt the CFPB will never run out of institutions to investigate. They also accept mobile complaints--a loan officer could stop by a realtor's office to drop off lunch and an unhappy borrower could have submitted a complaint via cell phone before the LO could leave the building. The complaint process is available in Spanish and even allows complainants to check the status of the complaint.
What are some concrete examples of where today's world might be different than yesterday?
Creditors may be more wary of holding promotional or training events for realtors ... concerned that CE credits or other "things of value" would be construed as in exchange for referrals
Creditors may feel pressure to spend less in shared advertising. Yesterday they might have split an ad 50/50 with the realtor, while today they would pay only 20% where the ad space looks like this: 20% lender's information - 20% realtor's information - 60% pictures of homes for sale. The reasoning being the lender can only pay for what it is using, and the lender doesn't benefit from the homes being sold. (No doubt this is a harsh interpretation, but anyone have any thoughts on why the CFPB wouldn't agree with it?)
For lenders sharing space with, or renting from, a realtor, the amount paid may require a second look. There's always some play in "market value," but you wonder if there are some out there who have stretched that a bit too far.
Lesson = pay extra attention to RESPA rules that you know and love
Indirect Effects
The CFPB also affects realtors indirectly through the financing options available to the borrower and other changes in the origination of a loan.
Increased documentation may slow down closings, other changes may result in hassles to clients (especially self-employed), etc.
Most significantly, realtors may need to find new lenders to refer business to. The ATR/QM regulations have shaken up what products are available, with many lenders discontinuing certain products and/or altering underwriting standards. And as we all know, not all institutions are in the same boat; some have advantages or disadvantages regarding flexibility with product offerings that competitors do not. Others are so well prepared for the changes that they they have created an advantage for themselves in terms of speed and efficiency in closings.
Here are a few examples that we thought of:
A real estate agent finds his local bank is taking forever to close loans ... may consider using a mortgage company with a much quicker turn-time.
A mortgage company may have more difficulty with high DTI jumbos under the new rules, which may cause a real estate agent to seek out a lender with portfolio space to take these as non-QMs.
A bank underwriting to appendix Q may be unwilling to underwrite to asset-based income, so a realtor may turn to a "small creditor" to originate loans with high-asset, low-income borrowers such as retirees or trust-fund recipients
Until a secondary market develops for non-QM, small community lenders will have some advantages in terms of products they can offer to consumers. However, as we've said before, the real question is whether they'll take full advantage of these advantages.
Bottom Line:
What a realtor might be interested in is this: small community lenders have a greater ability to make loans that don't fit perfectly within the rigid new guidelines that are plaguing the rest of the industry. These "small creditors" might be able to help the realtor sell a few extra homes this year. But these lenders aren't as likely to be as aggressive (that the realtor might deal with now) and, if a realtor wants to explore this type of new connection, she may need to do so herself instead of waiting for a small community lender to come to explain its new-found advantages.
In other news:
I saw my first "QM commercial" while in a hotel in Portsmouth, NH last week ... "Behind on your mortgage? New rules are in place that might save your home."
President Obama signed the Flood relief bill into law. So we can't criticize him for the unfair Flood hikes, but now we can blame him for requiring us taxpayers without waterfront property to pay for those who have it
A lot of clients have asked us to refer in any great salespeople that we hear of ... well, here you go!
Did you know the Sunshine law does not apply to the CFPB (similar only to the C.I.A. and a small number of other organizations)? This has opened the CFPB up to even more criticism.
If you still haven't updated your policies in light of ATR/QM, or would be interested in someone reviewing what you do have for compliance + competitiveness, click this link for our sales flier on our QM Policy Audit service
With rising stress and constant turnover, you're lucky if you work somewhere where people care about each other and have fun working hard together. Barbara Bush was quoted as saying,
Never lose sight of the fact that the most important yardstick of your success will be how you treat people - your family, friends, and coworkers, and even strangers you meet along the way.
Having trouble showing someone you care? Key in on their emotional needs (just like physical needs- need for rest, food, water- we all have emotional needs). Everyone is different, but here are the top 10 to keep in mind:
Affection - Do you need a hug?
Acceptance - (especially after a mistake is made) Hey, everybody makes mistakes, you're still a valuable part of this team.
Appreciation - Thanks for all your help on this project.
Approval - I'm glad I hired you.
Attention - Why don't we go out to lunch today? (does not apply with regulators)
Comfort - I see you're upset, what can I do?
Encouragement - I know these weekly newsletters are tough, but they're going to help the company in the long-run (someday, somehow, perhaps...)
Respect - I know you have some experience here, I'd like to hear your ideas on how we can improve this project
Security - This can apply to physical safety, concern for loved ones, or connections to them, your financial situation, and more Support - You look like you could use a hand with that!
Note:
A colleague--to remain anonymous--encouraged me to put more of a comical spin on this top 10 list, e.g. "I recognize, Ben, that you think you are funny;" and "I'll comfort you when people call to complain that your e-mails are too long and boring." I took the high road out of respect for anybody reading this .... but feel free to e-mail my colleague directly at sventi@SCAPartnering.com to chime in on the "joke debate", secondary marketing, staffing, or any other issue you might want to share with him.
Thanks so much for reading our weekly newsletters. We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy. Your calls and e-mails are very helpful - please keep contributing.
**These are our opinions. We're not authorized, or willing, to express those of others.**